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Nearshoring: How Can Mexican Exporters Take Advantage of Momentum

By Peter Spradling - Marco
Co-Founder and COO


Tue, 05/09/2023 - 12:00

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International buyers consistently seek ways to mitigate risk in their supply chains. Many US-based buyers are shifting their sourcing strategies to focus on suppliers located in their proximity, either domestically or allied countries. This trend is a direct result of the heightened perception of risk associated with doing business in Asia. 

Nearshoring is a strategy that involves moving the business' core processes closer to its core market to leverage logistical advantages, such as lower transportation costs, lower risk of shortages, and overall more supply chain certainty and control.

To illustrate the potential of this trend, let's compare the evolution of US imports from Mexico and China in 2021 versus 2022. While annual imports from Mexico grew by 18% year-over-year, imports from China only grew by 6%. This presents a unique opportunity for Mexican exporters, particularly small and medium enterprises (SMEs), to attract new international buyers by demonstrating robust financial health and the capacity to fulfill purchase orders promptly and efficiently.

Become an attractive supplier for international buyers.

To seize this opportunity, small and medium Mexican exporters must compete against other regional markets and local competitors who are selling similar or even the same products. Therefore, it is essential to examine how they can distinguish themselves as the most appealing option for potential buyers.

Exhibit financial stability and overall corporate strength. 

International buyers constantly seek to minimize supply chain risks by working with trustworthy suppliers who can deliver goods or services on time. Therefore, Mexican suppliers must exhibit a robust financial status and demonstrate their ability to fulfill purchase orders promptly and efficiently to establish confidence and secure partnerships with buyers from markets like the US and Canada.

Provide convenient payment term options.

We have observed a significant rise in credit days requested by buyers, both domestically and internationally. As a result, open account sales have become more prevalent, with payment terms ranging from 30 to 120 days and even up to 180 to 200 days in some cases. These extended payment periods can pose a significant challenge for Latin American exporters, who face fixed costs, such as rent and salaries on a weekly or monthly basis. 

In recent years, especially in the post-COVID era, offering flexible and extended payment terms has become essential to remain competitive. Buyers now expect such flexibility, and not offering them financing options could significantly hinder the exporter’s ability to compete in markets like the US, Canada, or Europe. Therefore, unless a business has a highly differentiated and in-demand product, offering financing options is the only way to stay competitive in today's market.

Think long-term.

Offering favorable financing conditions to buyers is a means of remaining competitive in the present and a strategic investment in the future. Buyers tend to develop loyalty toward exporters who provide such favorable terms, increasing repeat orders. 

Additionally, by freeing up liquidity for buyers, they can place larger orders, enabling exporters to increase sales volume and access more financing. This creates a virtuous cycle, where increasing sales and favorable financing terms work together to drive further growth.

Have strong references to provide to international buyers.

These references can come from domestic buyers who have purchased from the exporter in the past and can speak to the quality of the product, level of service, on-time delivery, and even financing options provided. 

Additionally, references from financial institutions, such as banks or other entities with whom the exporter has a long-standing relationship, can also be valuable in providing a positive image of the company.

Access to working capital.

The challenge for SMEs is acquiring sufficient working capital to maintain financial stability while offering favorable payment options to their suppliers. All of this without facing financial strain. How can Mexican SMEs achieve this when liquidity is not prevalent?

Look beyond banks.

Many banks in Mexico are hesitant to provide financing when the guarantee is outside the country. Banks may feel uncomfortable recovering funds from an unfamiliar market in unforeseen circumstances. In addition, Mexican SMEs may struggle to secure financing without providing some form of collateral, which is often double the amount requested. 

The key is for them to look beyond banks and lose the fear of working with modern fintech solutions that can solve their financing needs better than banks. Today, they can access several international financing solutions to help them access the liquidity and working capital required to maintain and expand their exports. 

Many of these fintech approaches focus on the company's potential rather than solely on history and collateral. By analyzing the credit profile of international buyers, they are able to offer credit lines of up to millions of dollars to small and medium-sized businesses.

Look beyond regular credit lines.

Exporters in Mexico can benefit from exploring alternative methods to access liquidity beyond traditional credit lines. For example, rather than immediately applying for business loans or considering equity financing by bringing on new investors, they can explore alternative solutions offered by fintech companies. 

In addition, fintech companies often have modern underwriting processes that are more flexible and can provide access to capital without demanding stringent requirements that may be challenging for a startup or small exporter to fulfill.

For instance, international factoring offers many benefits, including focusing on the credit profile of international buyers rather than just the Mexican exporter. This approach allows the fintech to provide credit lines to SMEs that traditional banks may not approve due to insufficient collateral or track record. Also, these financing options are 10 times more agile when increasing a credit line. 

International factoring can also offer longer credit lines than local credit, particularly when transit time is factored in. These options can be intimidating for SMEs with lower sales figures, but it is important to consider the frequency of sales and terms provided. 

By offering terms of 45, 60, or 90 days, monthly exports of US$300,000 can quickly add up and require a line of credit of US$1 million or more. The flexibility of international factoring can support SME growth and provide peace of mind in the face of unforeseen events or logistical delays.

Photo by:   Peter Spradling

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